Toby Johnson
30 April 2014

Social Value Act

Croydon Social Value toolkit category lifecycle

1. Background: social enterprise sector, institutions and policy in the UK

Recent government estimates suggest there are 70,000 social enterprises[1] in the UK, employing around a million people[2]. The sector’s contribution to the economy has been valued at over £24 billion[3]. The UK is a pioneer when it comes to social enterprise and the social investment that helps finance it, attracting the interest of international practitioners and policymakers alike. The social enterprise sector’s economic and social contribution is also increasingly recognised by government, business and individuals alike – from the Treasury’s announcement of a tax incentive for investment into social enterprise to the increased procurement of social enterprise in private sector supply chains.

The social enterprise sector has long campaigned for commissioning practice to change. Embedding social value in commissioning would ensure that the full weight of the public sector’s purchasing power is directed at achieving social and environmental benefits, alongside delivering financial efficiency. Further, social enterprises are well practiced at providing added social value across many sectors including health, education, housing and transport – for example using bus contracts to create jobs for people who would otherwise be unwillingly reliant on the state, or using recycling contracts to train and build the self-esteem of young people who didn't think they could play a part in society.

Commissioning in this way would therefore allow social enterprises and voluntary organisations to demonstrate the full value and benefits of their approach to service delivery, putting them in a stronger position to compete for public sector contracts. Specifically, embedding social value in procurement could help to:

  • Minimise the impact of the spending cuts on civil society organisations
  • Support local job creation
  • Widen the market and increase choice

The Public Services (Social Value) Act, which gained Royal Assent in March 2012 and went live on 31st January 2013, states that commissioners must consider how to improve the economic, social and environmental well-being of the area served by them through procurement. The Act covers[4]:

  • Public service contracts (including service contracts with a works or goods element) and frameworks for such contracts
  • Applies itself to the pre-procurement stage of the commissioning process
  • Requires commissioners to consider whether to undertake any consultation as to these matters
  • Provides that genuinely urgent situations do not require this exercise

And applies to:

  • All public service contracts over EU thresholds (£113,057 for central government and £173,934 for other public bodies)
  • Those public services contracts over EU threshold with only an element of goods or works
  • All English and some Welsh bodies including local authorities, government departments, NHS Trusts, PCTs, fire and rescue services, and housing associations.

2. Summary of main characteristics of good practice approach

As a starting point, for contracting authorities that are bound by the EU rules and who are required to comply with the Public Services (Social Value) Act 2012, social value can best be delivered when the following principles are observed:

  • Prepare and adopt a policy that sets out that organisation’s priorities for the well-being of the area(s) that you serve – this could be done annually or on a three year cycle. Under EU law, a policy basis of this kind will legitimise the environmental and social characteristics that are reflected in the subject-matter of the relevant contract and the evaluation criteria adopted to determine the service provider chosen at the end of the procurement process[5].
  • In relation to any services that you are responsible for, consider how you should commission them, having regard to your social value policies;
  • If you decides to commission those services by procuring them from a third party, consider how those priorities can be reflected in the procurement, firstly in the specification for those services, and secondly in the procurement process by asking about the bidders’ track record in delivering the services (described to reflect the social value policies) as well as determining the criteria to be adopted for determining the winning tender;
  • Before launching the procurement exercise, engage with the market about how to realise the whole service package including those aspects that can increase the social value in the project. Within this encourage the market to engage with organisations that can help realise the social value aspects of the services: many social enterprises are in a strong position to assist with this;
  • Adopt mechanisms for measuring the performance of the services including social value requirements that are linked to the way that services are paid for under the relevant contract;
  • Learn from the performance of the contract about how best to develop social value requirements through a progressive change control mechanism in the contract and also to assist practice in subsequent procurement exercises.

3. Evidence/Justification for Good Practice

The Public Services (Social Value) Act is very new and therefore the evidence base does not yet exist to promote best practice. An example of how social value can be used effectively from before the Act is from September 2011, when the London Borough of Waltham Forest was looking to re-tender a seven year contract for the provision of transport services. The contract included Special Educational Needs transport and adult day centre transport, as well as other local services.

In designing the tender, Waltham Forest’s procurement officers wanted to make sure they got as much value out of the contract for local residents as possible. To help evaluate the all-round contribution of potential providers, they included a question in the tender asking bidders to demonstrate how their operational model could contribute to efficiencies and give added value to the service. This question counted for 10% of the final contract score and gave all bidders the opportunity to think about how they could achieve a wider impact from their services for the local community.

The contract was won by HCT Group, a social enterprise that was founded in 1982 in Hackney, and now runs transport services in a number of London Boroughs as well as elsewhere in the UK and Channel Islands. As a social enterprise, providing community value is central to how HCT Group operates, with a focus on helping the most marginalised to access transport services and creating employment opportunities for those furthest from the labour market, with 76% of all remuneration going to staff from these areas[6]. However, all too often there is no opportunity for them to demonstrate this in bids for contracts.

The fact that Waltham Forest’s contract included a scored question about added value gave HCT Group the space to set out the additional social impact of their approach, explaining that any profits they made on the contract would be re-invested into a learning centre that would provide training for long-term unemployed people in the borough. HCT Group was therefore able to score very highly on this section, contributing, along with their competitive pricing and high quality delivery model, to their success in winning the contract.

4. Context and history of how it developed

There have been a number of responses from commissioners since the Act became live in January. This has included:

•       Liverpool: Social Value task force[7]

Set up in March 2013. Mayor of Liverpool, Joe Anderson has talked about how:

The Social Value Act gives commissioners, for the very first time, the green light to choose providers that are committed to delivering community prosperity and wealth. It has the power to bring about a cultural shift in commissioning practices by local authorities and other public bodies.
The task force is currently considering a raft of recommendations for how to embed social value across all procurement.

•       Birmingham: Social Value Charter for suppliers[8]

Leader of Birmingham City Council Sir Albert Bore:

The council's controllable budget exceeds £1bn, so it is absolutely crucial we make that money work as hard as possible for the economic, social and environmental benefit of Birmingham's citizens.

The charter must be signed by all suppliers:

•       Committing its suppliers to providing local employment opportunities and training;

•       Supporting community organisations; and

•       Adopting the principle of "buying Birmingham first”

The charter also obliges companies to;

–       adopt the "living wage" of £7.45 (€9) per hour;

–        protect the environment by minimising waste and energy consumption; and

–       apply ethical procurement standards throughout their supply chains.

•       Croydon: toolkit and policy

Have created a full toolkit and policy for all commissioners as well as advice for potential suppliers. Worth looking at in its entirety,  http://www.croydon.gov.uk/contents/departments/business/pdf/socialvalue.pdf.

There has also been an interesting response from the private sector, in particular organisations with large public sector businesses. This has included:

•       Veolia Position Paper, “Social Value Act”[9]

•       SITA “Creating social value: The role of the waste and resource management industry” report[10]

•       Wates Construction Social Enterprise Brokerage[11]

5. Strengths and Weaknesses

Stakeholder

Strengths

Weaknesses

Government

-Potential to achieve greater value for money

-Innovation in commissioning

-Lack of understanding of social value

-Difficulties around measurement

Social enterprises/
charities

-Opportunities to demonstrate social value to win contracts

-Opportunities to partner/sub-contract

-Greater innovation means greater opportunities

-Contracts still too large

-Private sector can deliver social value as well

-Entering very competitive marketplace, quality and price still most important

Private Sector

-Opportunity to work in different way with commissioners

-Can differentiate from competitors if done well

-Lack of understanding of social value

-Difficulties around measurement

-Lack of uniformity across different areas

-Potential loss of business to social enterprises/charities

 

6. Comparisons with other experiences (alternatives or complementary - in same territory or elsewhere)

Including social and economic requirements into procurement contracts is nothing new.  For example, councils have become increasingly used to thinking in this way since the requirement to design sustainable community strategies came in under the Local Government Act 2000: this unlocked their use of the “well-being power” that in England is now replaced by “the general power of competence”. Many councils were also enthusiastic adopters of the recommendations of the Sustainable Procurement Task Force[12] and developed sustainable procurement strategies that are of a high quality.

Building on these initiatives, social value has experienced a recent boost thanks to increased clarity about EU procurement rules[13] and a relaxation of UK legislation regarding non-commercial requirements applying to councils. The latest EU procurement rules for public bodies purchasing goods and services which the EU Parliament is expected to adopt this autumn state[14]:  

·         That environmental and social considerations can be taken into account in the contracting process, for instance, encouraging providers to employ disadvantaged people or long-term job-seekers in delivering the contract;

·         How poor performance under previous contracts can be explicitly permitted as grounds for exclusion; and

·         A new Innovation Partnership approach where a contractor requires a service or product which is not already available on the market.

There is therefore considerable potential for widespread adoption across member states. Domestically, SEUK have also been speaking to all major political parties about potentially strengthening the Act, by for example also covering goods and works contracts or being compulsory criteria on all contracts.

7. Overall assessment

There is huge potential for the Social Value Act to be adopted across the EU and beyond. SEUK have had interest in the Act from around the world including Australia, Thailand and South Korea. The EU is clearly developing its own thinking in this area as outlined above. In order for the Act to be adopted elsewhere, the key areas would be:

•       A government capable of pushing through the legislation

•       A thriving third sector capable of delivering public services and government contracts

•       A commissioning environment that enables social value to be considered

•       An understanding of what social value means to specific localities

 



[1] Government estimate for ‘very good fit definition’ social enterprises from BMG Research, Social Enterprise: Market Trends,

Cabinet Office (May 2013) and based on the BIS Small Business Survey 2012.

[2] 973,700 according to BMG Research, Social Enterprise: Market Trends, Cabinet Office (May 2013).

[3] Government gross value added (GVA) estimate derived from: Annual Small Business Survey 2005, Department of Trade and Industry (DTI); The Annual Survey of Small Businesses’ Opinions 2006/07 (ASBS 2006/07), Department for Business Enterprise and Regulatory Reform (BERR) (February 2008); Annual Small Business Survey 2007/08, BERR (2009); and the Annual Business Inquiry 2008, Office for National Statistics (ONS) (2010). DTI and BERR are now known as the Department for Business, Innovation and Skills (BIS).

[4] Act itself - http://www.legislation.gov.uk/ukpga/2012/3/enacted. See also Cabinet Office Procurement Policy Note “The Public Services (Social Value) Act 2012 – advice for commissioners and procurers” (December 2012)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/79273/Public_Services_Social_Value_Act_2012_PPN.pdf

[5] Concordia Bus Finland Oy Ab (formerly Stagecoach Finland Oy Ab) v (1) Helsingin Kaupunki (2) HKL– Bussiliikenne (2002) (C-513/99)

 

[13] See European Commission Document “Buying Social: A Guide to Taking Account of Social Considerations in Public Procurement” (January 2011) http://ec.europa.eu/social/BlobServlet?docId=6457&langId=en

[14] “Proposal for a Directive of the European Parliament and of the Council on Public

Procurement” (July 2013) http://www.bmwi.de/BMWi/Redaktion/PDF/P-R/richtlinie-klassisch-engl,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf